News

Currency Management: Interest rates are dropping - now what?

November 20, 2001

Raleigh-Durham, NC, USA, October 2001: Mr. Greenspan has dropped the US overnight interest rate TEN times recently, putting it below half of where it used to be. Does that make proper Retail Banking Currency Management less significant or urgent?

Well, yes, for the uninitiated and less experienced "currency management experts" who still believe that Currency Management is merely managing cash holdings, it certainly seems like half of the incentive to reduce cash holdings have vanished… But for the many Financial Institutions running Transoft's OptiCa$h, savings still abound. Because OptiCa$h balances all cash cost components against each other, savings do not drop, they just switch around - and in fact, overall they may go up!

For traditional cash managers attempting simple cash holding reductions with manual procedures or with simplistic automated spreadsheets that do not provide true dynamic cost optimization, the majority of the potential savings does not register. For the rest (the Optica$h users on sic continents), cash holdings savings represents perhaps only 25 % of the overall equation for total cost savings. Thus, the lower the interest rate, the higher the incentive to run a sophisticated Currency Management operation doing what only OptiCa$h does: balancing all costs and automating decisions and ordering.

When interest rates drop like this, it may make more sense to hold onto more cash and drop transportation costs. Deciding when this is the case, and deciding when it is time to take action, is the art of the many OptiCa$h algorithms. This threshold, i.e. when to perhaps drop a scheduled delivery day and send out more cash, is not easily measured, and can only be a moving target based on possible delivery days, anticipated customer demand, transportation cost, etc. ALL the cost optimization parameters MUST be considered in one single balancing act - it is mathematically impossible to first optimize holdings, and THEN optimize transportation. There is only one optimum point on this curve!!!

Furthermore, this is a dynamic process, moving up and down each week with each event, season and other fluctuations. This means a threshold may be reached during the week of Mother's day, but not the surrounding weeks? Does your system continuously optimize this, or are you still doing "just forecasting"?

OptiCa$h brings a new level of TRUE cost optimization with fully integrated forecasting and recommendations, ordering, monitoring and emergency management to your ATM, branch and vault network. The maturity and power of OptiCa$h finds savings everywhere, and continues to squeeze them out of the network while improving availability, and constantly producing unmatched savings. So, when Mr. Greenspan adjusts the interest rate up or down, you can rest assured that you are running a mathematically lean and mean network operation, with the lowest possible overall cost and the highest possible availability. You can also rely on automatic adaptation to reflect any other changes such as carrier prices going up, or the competition setting up shop next to your cash points. That means your bank's bottom line will continue to be that much more attractive than your competitor's!